Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting very bullish technically and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.

Qunar Cayman Islands

My first earnings short-squeeze trading idea is China-based online travel commerce platform operator Qunar Cayman Islands  (QUNR) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Qunar Cayman Islands to report revenue of $1.13 billion on a loss of $8.03 per share.

The current short interest as a percentage of the float for Qunar Cayman Islands is very high at 11.6%. That means that out of the 34.21 million shares in the tradable float, 3.98 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.7%, or by about 65,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, Qunar Cayman Islands is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways and consolidating over the last two months, with shares moving between $33.36 on the downside and $38.76 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Qunar Cayman Islands.

If you're bullish on Qunar Cayman Islands, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $37.22 to $38.50 a share and then above more key resistance levels at $38.56 to $38.76 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 956,413 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $45 to $46, or even $47 to $50 a share.

I would simply avoid Qunar Cayman Islands or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $35.33 to $33.36 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $30 to $27.50 a share.

ExOne Company

Another potential earnings short-squeeze play is 3D printing player ExOne Company  (XONE - Get Report) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect ExOne Company to report revenue $14.71 million on a loss of 15 cents per share.

The current short interest as a percentage of the float for ExOne Company is very high at 25.5%. That means that out of the 8.62 million shares in the tradable float, 2.20 million shares are sold short by the bears. If this company can produce the earnings news the bulls are looking for, then shares of ExOne Company could easily spike sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, ExOne Company is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last two months and change, with shares soaring higher off its low of $6.60 a share to its recent high of $12.16 a share. During that uptrend, shares of ExOne Company have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed this stock within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on ExOne Company, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $12.16 to $12.67 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 269,202 shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $14 to its 52-week high of $15.97 a share.

I would simply avoid ExOne Company or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $9.87 a share and its 200-day moving average of $9.37 a share and also its 50-day moving average of $8.91 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $7.92 to $7.50, or even $7 to $6.60 a share.

Inogen

Another potential earnings short-squeeze candidate is medical technology player Inogen  (INGN - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Inogen to report revenue of $120,000.

The current short interest as a percentage of the float for Inogen is pretty high at 14.4%. That means that out of the 14.29 million shares in the tradable float, 2.06 million shares are sold short by the bears.

From a technical perspective, Inogen is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last month and change, with shares moving higher off its new 52-week low of $28.81 share to its intraday high on Monday of $34.62 a share. During that uptrend, shares of Inogen have been making mostly higher lows and higher highs, which is bullish technical price action. This uptrend is now starting to push this stock within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on Inogen, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $36 to $37.66a share with high volume. Look for volume on that move that registers near or above its three-month average action of 170,018 shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels $40 to its 200-day moving average of $41.90, or even $43 to $46 a share.

I would avoid Inogen or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $33.24 to $32.49 a share and then below more key support at $31.39 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support level at its new 52-week low of $28.81 a share.

Eastman Kodak

Another earnings short-squeeze prospect is electronic equipment player Eastman Kodak  (KODK - Get Report) , which is set to release numbers on Tuesday after the market close. There are currently no analysts' estimates available for Eastman Kodak.

The current short interest as a percentage of the float for Eastman Kodak is rather high at 10.4%. That means that out of 18.60 million shares in the tradable float, 1.94 million shares are sold short by the bear. If this company can produce the earnings news the bulls are looking for, then shares of Eastman Kodak could easily spike sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, Eastman Kodak is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last few weeks, with shares moving higher off its low of $7.90 a share to its recent high of $11.12 a share. During that uptrend, shares of Eastman Kodak have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're bullish on Eastman Kodak, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $10.50 to $11.12 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 184,002 shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $13.57 to $14, or even $14.60 to $16 a share.

I would simply avoid Eastman Kodak or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $9.78 to its 50-day moving average of $9.41 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $8.10 to $7.90 a share or its new 52-week low of $7.56 a share.

Momo

My final earnings short-squeeze trading opportunity is China-based mobile social networking platform operator Momo  (MOMO - Get Report) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Momo to report revenue of $53.70 million on earnings of 4 cents per share.

The current short interest as a percentage of the float for Momo is extremely high at 29.8%. That means that out of the 14.43 million shares in the tradable float, 4.31 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.6%, or by about 379,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Momo is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last month and change, with shares moving higher off its new 52-week low of $6.72 a share to its recent high of $14.72 a share. During that uptrend, shares of Momo have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Momo, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $13.73 a share to some more key overhead resistance levels at $14 to $14.72 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.42 million shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $16 to $16.60, or even $17 to $17.80 a share.

I would avoid Momo or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 50-day moving average of $12.01 a share to its 20-day moving average of $11.79 a share and then below more key support at $11 a share with high volume. If we get that move, then this stock will set up to re-fill some of its previous gap-up-day zone from last February that started near $9 a share. 

 

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.